There is a general belief that farmers may not purchase insurance policies because they are not convinced the insurer will actually pay them if their crops fail.
Why are farmers reluctant
to purchase insurance?
Can delaying the premium payment until harvest time increase farmers’ demand for agricultural insurance?
Farmers are much more likely to purchase insurance when they do not have to make payments until after the harvest.
There are also general beliefs that demand for standard insurance offer are more likely low because farmers may have limited cash to purchase insurance before the harvest.
Research shows that farmers may not purchase insurance because of “present bias”, as a result they might care more about the cost of insurance today than about the income they might lose due to a future crop failure.
Sugarcane farmer and Member of Parliament for Chiredzi South in the Lowveld of Zimbabwe, Farai Musikavanhu, explains that most farmers are sceptical of insuring against unforeseeable risks because they fear to incur costs in form of premiums that are deemed not commensurate with their contributions.
“Traditionally in the sugarcane industry farmers do not have insurance policies although they are free do so. Everything is cost-driven, it’s a cost base analysis issue.
“The control mechanisms if fire happens to break out against sugarcane are in place, but it doesn’t mean cane fires are not there, but when cane fires break out, there is a mechanism of harvesting the sugarcane quickly.
“Unlike in tobacco where there is frost damage, in the Lowveld we don’t have such risks as hailstorm, but of course if need be, we normally consider insurance policies to guard against such natural hazards, those in horticulture and tomatoes farming consider insuring against frost, but again we don’t suffer from such risks so insurance premiums end up being costs to farmers.
“If sugarcane is affected by fire, we quickly harvest and process them for milling to avoid further loss.
“Insurance companies approach us but still it’s a question of cost proposition, farmers have pressing needs elsewhere, so they end up not insuring against risks that affect farming production, because the risks are always deemed to be fairly manageable”, he said.
A sugarcane farmer in a plantation in Zimbabwe’s Lowveld, Chiredzi working in the field.
In its basic sense agricultural insurance covers the whole production process including post-harvest storage, processing and transportation of produce to the final markets.
Farming can be a risky business considering factors such as drought, bad harvest, or dip in crop prices can leave small farmers in developing countries without a stable income throughout the year.
Attempts to mitigate these risks with agricultural insurance have normally been unsuccessful because farmers are reluctant to buy insurance policies.
Zimbabwe Farmers’ Union President Abdul Credit Nyathi said insurance is critical in agricultural production and farmers are encouraged to consider it.
“Most farmers do not have insurance policies and it is the responsibility of Zimbabwe Farmers’ Union to meet with insurance companies so that they explain themselves to farmers.
“Farmers need insurance policies even those who do not know about it. It is because they are not well educated on the subject.
“So what is important is for members of the media fraternity to create a forum for both farmers and insurance companies to meet and talk.
“We consider insurance policies a lot and we have engaged a lot of them who now have got a client base from our farmers,” said Nyathi.
In some cases, this low demand may be due to payment timing; most insurers offer insurance (and require premium payments) at planting time, when farmers are typically cash-constrained due to purchases of seeds and other materials.
Harare-based Agronomist Dr John Basera, said it is imperative that farmers insure their crops in face of ravaging effects of climate change.
“I think on a crop by crop such as tobacco, yes, they do insure and some on a certain proportion they also insure on wheat production.
“But generally, farmers do not have literacy around insurance, but yes, I think it is one of the many ways of adapting to issues of climate change”, he said.
In Western region Kenya, about 80 percent of the working population works in agriculture, mainly sugarcane, and small-scale farmers account for the vast majority of agricultural production.
The Agricultural Microinsurance for Sugar Cane Farmers in Kenya plays a pivotal role in safeguarding risks and disasters that might affect sugar cane production. The insurance company is credited for sugarcane success in Kenya.
However, in Tanzania only 1 percent of farmers have insurance, and rates are similar in other SADC countries, as part of the poverty trap.
The individual and national vulnerability to variable weather patterns is huge, and yet state level, cross-subsidised insurance would come at a relatively low cost.
There is need for the development of appropriate financial instruments for agricultural risk insurance, which should be heavily subsidised by the state to improve African agricultural production in Africa.
Rwanda, for instance, has its biggest source of income from agriculture, which contributes 39 percent of GDP, employing 75 percent of the population in mainly subsistence agriculture.
Main agricultural products are coffee, tea, bananas and coconuts which are mainly exported to neighbouring countries. The industry saw a decline in contribution to GDP between 2016-2017 due to bad rains plaguing the region of late.
NicozDiamond managing director, David Nyabadza, confirmed that they have packages for farmers with the view of contributing to agricultural production not only in Zimbabwe but for the continent.
“The main crop is tobacco which is insured, sugarcane, yes, we do insure a bit to the Lowveld.
“Our aim is to also contribute to macroeconomic performance of Zimbabwe and the continent,” he said.
Agriculture is the backbone of most African countries and governments should seriously consider various insurance premiums and policies to guard against unforeseen risks and disasters.
Some of the risks are as a result of climate change, theft or sometimes crop failure, a critical factor that farmers should put into
consideration in view of agricultural insurance.